MIAMI BUSINESS LITIGATION: ARBITRATION PROVISIONS ARE UNEFORCEABLE WHEN THEY DEFEAT THE PURPOSE OF A REMEDIAL STATUTE

Commercial contracts often contain dispute resolution provisions requiring the contracting parties to resolve all claims arising between them through arbitration. However, arbitration provisions are not automatically valid and enforceable under Florida law. The arbitration provision must provide the potential claimants with the same legal remedies that are otherwise available to them in civil litigation. “Although parties may agree to arbitrate statutory claims, even ones involving important social policies, arbitration must provide the prospective litigant with an effective way to vindicate his or her statutory cause of action in the arbitral forum.” Romano ex rel. Romano v. Manor Care, Inc., 861 So. 2d 59 (Fla. 4th DCA 2003). In business litigation, litigants often attempt to compel arbitration based on arbitration provisions, to avoid litigating in civil court where discovery is generally broader than arbitration. Peter Mavrick is a Miami business litigation lawyer, and also represents clients in business litigation in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents clients in arbitration matters, breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts.

Parties will typically file a motion to compel arbitration to avoid litigating in civil court where discovery is generally broader than arbitration. “In ruling on a motion to compel arbitration, the trial court is limited to three inquiries: ‘(1) whether a valid written agreement to arbitrate exists; (2) whether an arbitrable issue exists; and (3) whether the right to arbitration was waived.’” Romano ex rel. Romano v. Manor Care, Inc., 861 So. 2d 59 (Fla. 4th DCA 2003) (citing Seifert v. U.S. Home Corp., 750 So. 2d 633 (Fla. 1999). “The arbitrability of claims rests on the assumption that the arbitration clause permits relief equivalent to court remedies. When an arbitration clause has provisions that defeat the remedial purpose of the statute, therefore, the arbitration clause is not enforceable.” Paladino v. Avnet Comput. Techs., Inc., 134 F.3d 1054 (11th Cir. 2001). The recovery of prevailing party attorneys’ fees is an important remedy available to litigants under many remedial statutes in Florida. See, e.g., Florida’s Deceptive and Unfair Trade Practices Act, Fla. Stat. § 501.2105 (“In any civil litigation resulting from an act or practice involving a violation of this part . . . the prevailing party . . . may receive his or her reasonable attorneys’ fees and costs from the non-prevailing party).

Florida courts routinely hold that,“[w]hen an arbitration agreement contains provisions which defeat the remedial provisions of the statute, the agreement is not enforceable.” Flyer Printing Co. v. Hill, 805 So. 2d 829 (Fla. 2d DCA 2001). In Flyer Printing Company, the Second District Court of Appeals ruled an arbitration provision was unenforceable because “[n]either party was entitled to attorneys’ fees in arbitration.” 805 So. 2d 829 (Fla. 2d DCA 2001). In Hernandez v. Colonial Grocers, Inc., the United States Court of Appeal for the Eleventh Circuit held that “a[n] arbitration agreement containing provisions that defeat a federal statute’s remedial purpose is still not enforceable. 124 So. 3d 408 (Fla. 2d DCA 2013). In Paladino v. Avnet Computer Technologies, Inc., the Eleventh Circuit refused to enforce arbitration provision because the clause “deprive[d] an employee of any hope of meaningful relief, while imposing high costs on the employee, [and] undermine[d] the policies that support Title VII.” 134 F.3d 1054 (11th Cir. 2001).

Arbitration provisions are therefore unenforceable when they wholesale preclude prevailing parties from recovering their attorney’s fees in arbitration. In Romano ex rel. Romano v. Manor Care, Inc., Florida’s Fourth District Court of Appeal considered the validity of a nursing home’s arbitration agreement that precluded any party from recovering attorneys’ fees in arbitration. Romano ultimately found the “arbitration agreement would not vindicate the resident’s statutory rights in any respect” and held “the agreement would specifically deprive the resident of remedies that the legislature felt were important.” Romano therefore concluded the arbitration agreement was unenforceable because the “arbiters [could not] award attorneys’ fees to the successful resident even though the ability to make such an award was intended by the legislature” under certain nursing home statutes.

Arbitration provisions may also be unenforceable if the provision has a chilling effect on potential civil litigation filings. Florida courts likely will not compel arbitration in these instances. For example, in Hernandez the Eleventh reversed the trial court’s order granting a motion to compel arbitration because the subject arbitration provision contravened the purpose of the plaintiff-sided attorneys’ fees provision in the Fair Labor Standards Act (“FLSA”), i.e., the federal law concerning overtime and minimum wages. The Hernandez arbitration provision permitted the prevailing party in an arbitration to recover its attorney’s fees, whereas the FLSA only permits the plaintiff to recover such fees. Hernandez held that this contractual wording “render[ed] the potential costs of arbitration to be far greater to [plaintiff] than the potential cost of civil litigation.” Hernandez concluded “this [was] a sufficient chilling effect to defeat the remedial purpose of the federal act” because “it discourages the employee from pursuing a claim” under the FLSA.”

Peter Mavrick is a Miami-Dade business litigation attorney who also practices business litigation in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.